Plan For Retirement At Different Stages Of Life
The early years: If you're just starting your career, chances are you'll have other financial priorities besides retirement savings, such as paying off college loans, your monthly rent, and car payments. But that doesn't mean you should move retirement planning completely off your agenda. For instance, if your company offers a 401(k) plan, try to defer as much salary as possible, especially if your employer will match some of your contributions.
While it may be hard to see from this vantage point, the long-term benefits of tax-deferred compounding within a retirement account such as a 401(k) or an IRA can be substantial. Suppose you contribute $10,000 a year to your 401(k), including matching contributions, beginning with the first year you enter the workforce. Then assume you earn a 7% annual return on your investments in the account. After 40 years you will have accumulated $2,136,096 without paying a penny of tax! (You will be taxed when you withdraw that money during retirement.)
Marriage and family: For many people, the next stage of life involves getting married and starting a family. On top of those financial pressures, you may buy a house and then replace it later with a bigger place. Suffice to say, your regular salary could be stretched thin, plus you have to think about paying for the college education of your children.
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